TABLE OF CONTENTS. Board of Directors - Report from the Chair 4. Board of Directors 5. Report from the President and Chief Executive Officer 6-7

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3 TABLE OF CONTENTS Board of Directors - Report from the Chair 4 Board of Directors 5 Report from the President and Chief Executive Officer By the Numbers 8 Report of the Audit and Risk Management Committee 9 Canada Condensed Financial Statements Report from Lending Services Community Investment Report

4 4 BOARD OF DIRECTORS Report from the Chair BUILDING ON A STRONG FOUNDATION This year has been a very successful year again for Your Neighbourhood Credit Union. My task of summarizing for you the accomplishments of your Credit Union is again a good news story. We again faced a year of financial uncertainty in our economy that has become the norm. Despite this market environment YNCU had our most successful year ever achieving over $4,000, in revenue before taxes and dividends. As we approach the $2 billion dollar in assets mark we have not forgotten the reasons we were founded on. We continue to use part of our income to reward member loyalty with patronage dividends while supporting and sponsoring our communities activities. This success has everything to do with our dedicated staff and the loyalty and support of you, the member. This Credit Union is owned by you, the member. We offer all the products that the Big Banks do but the difference is that all profits stay in the community. Whether you are buying your first home, starting a business or saving for your retirement your staff wants to help you succeed and we have the products right here for you to succeed. This year the Deposit Insurance Corporation of Ontario has allowed Credit Unions such as us to insure up to $250, in deposits, compared to banks that only insure you for $100, We need to remember that Credit Unions were the first at insuring deposits in Canada. We can be proud of the fact it was Credit Unions who first allowed women to get credit without a cosigner or started products such as open mortgages or variable rate mortgages. We came into the marketplace for a reason and that reason is just as relevant today as when we first began in factory lunchrooms or church basements. We are 20 branches strong with the addition this year of a branch in the Fairview Park Mall in Kitchener, as well as a branch in Guelph. We continue to look for chances to grow our family of Credit Unions in the same way we seek to serve more members of our ever growing YNCU family. I reach out to you to allow us the privilege of being the holder of your mortgage or loans as well as your chequing account and deposits. We need you to be our ambassadors to family and friends in what I believe is the best kept secret in the financial industry. At this year s Annual General Meeting I have asked a member of the Waterloo Regional Police Service Fraud Unit to come and give you valuable information and trends on Cyber Crime as well as identity theft and how it is targeting all of us. As Chair of your Board of Directors, I extend my sincere thanks to the staff of Your Neighbourhood Credit Union for their hard work and service to our membership and to you as members, for entrusting us with your business. How could I not be proud to be a very small part in a very large success story? I remain sincerely yours, JOHN HAINES, BOARD CHAIRPERSON The committees are as follows: AGM AND NOMINATING COMMITTEE Anthony Piscitelli Christine Coccimiglio Frank Burgund Hilary Anderson, Chair John Haines, Ex Officio GOVERNANCE COMMITTEE Anthony Piscitelli, Chair Janice Gibson Jeff Piper Ken Walsh Terry Ragnitz PENSION COMMITTEE Janice Gibson Lloyd Hotchkiss Peter Muise Terry Ragnitz, Chair AUDIT AND RISK MANAGEMENT COMMITTEE Christine Coccimiglio David Walker Hilary Anderson John Crowley Peter Muise, Chair EXECUTIVE COMMITTEE Anthony Piscitelli Hilary Anderson John Haines, Chair Peter Muise Terry Ragnitz

5 ANTHONY PISCITELLI CHRISTINE COCCIMIGLIO DAVID WALKER FRANK BURGUND HILARY ANDERSON JANICE GIBSON JEFF PIPER JOHN CROWLEY JOHN HAINES KEN WALSH LLOYD HOTCHKISS PETER MUISE TERRY RAGNITZ 5

6 REPORT FROM THE President and Chief Executive Officer A year ago I was honoured to share with you the results of an excellent fiscal year. In my report I stated that providing outstanding service is no longer sufficient for YNCU to compete in a changing and highly competitive environment. A need for greater efficiency and focus on using resources wisely were the driving forces behind our desire to merge with Community First. Our results proved we were able maximize our ability to serve you while investing in our infrastructure, employees and the community. Building on that foundation, our priorities for 2017 were financial sustainability, growing relationships and improving our internal operations. In essence, being your trusted advisor. IN SUMMARY, AT THE END OF DECEMBER: 6

7 These results reflect the tremendous efforts of our dedicated staff, and the confidence of our members in the role that Your Neighbourhood Credit Union and Community First play in your financial well-being. In order to shore up our capital to facilitate our continued strong member growth, YNCU will be embarking on an investment share offering during This will be an excellent member investment opportunity, so keep a look out for the offering statement! As we look to Ontario results and the economic forecast, YNCU has benefited from being in areas with strong economies and from geographic diversification. The Conference Board of Canada states in its Provincial Outlook Economic Forecast: Ontario s economy continues to rely on its strong housing market, as economic growth in the province reached 3.0 per cent in But, with a housing market retraction coming, Ontario s economy will moderate to 2.0 per cent annual growth in 2018 Resource-dependent communities are starting to rebound from the slump in commodity prices. In 2017 and 2018, medium and mid-sized cities in commodityproducing areas are coming back from the two-year downturn sparked by the big decline in natural resource prices. Further evidence of our enviable community network comes from the 2017/2018 American Cities of the Future report. FDi, a division of Financial Times Limited, ranked 421 locations across North and South America in five categories: economic potential, business friendliness, human capital and lifestyle, cost-effectiveness and connectivity. This year, several Ontario cities were once again featured prominently, primarily in the business friendliness category, proving that the province has many opportunities for new and established businesses. The Ontario cities named in the 2017/2018 report across all categories include Toronto, Mississauga, Ottawa, Brampton, London, Hamilton, Oakville, Markham, Guelph, Waterloo, Cambridge, Windsor, Burlington, Niagara Falls, Brantford, Sarnia, Sudbury, Chatham-Kent, Kingston and Pickering. Last summer we cemented our presence in Guelph with the opening of a new branch to serve existing members and grow with the city. We will continue to review our branch network and make investments in all channels to provide service where, when, and how our current and future members want it. Changes in the financial sector have required investment in our existing and future technology innovations that is geared towards member satisfaction and convenience. The current operating environment can only be described as everchanging, with constantly increasing regulation and reporting requirements. Effective January 1, 2018, Deposit Insurance Corporation of Ontario (DICO) member credit unions were granted an increase with the insurance maximum now $250,000 and unlimited for registered products. This is seen as a huge benefit to members as this coverage increases security for members deposits. The opportunity for YNCU is to ensure we are our members first choice to consolidate their savings. Since the economic downturn in 2008, we have been subjected to a number of regulatory requirements aimed at strengthening individual financial institutions, including credit unions capital and liquidity requirements. These new regulations were a combination of governmental and international accounting standards. The implications directly impacted the asset management practices within the Canadian credit union system, thereby improving the fundamental strength of YNCU. The residential mortgage marketplace across the country has changed as a result of the impacts of the recently amended OSFI guidelines, namely B-20, which came into effect January 1, The single largest impact is the new requirement that, at a minimum, all uninsured residential mortgages must be underwritten using a qualifying rate that is the greater of the contract rate plus 2%, or the five-year benchmark rate as published by the Bank of Canada. According to the Ontario Real Estate Association (OREA) it is estimated that this will reduce overall buying power in the housing market by between 10% - 15%. Since it has never been YNCU s approach to push mortgages right to a borrower s maximum affordability, we expect the effect of this higher qualifying rate to be somewhat muted for us but still anticipate a potential reduction in mortgage volumes of approximately 10%. Against this backdrop we continue the process of amalgamating all aspects of Community First and Your Neighbourhood. This summer will bring the final step with the banking system harmonization, which represents the gateway to our ability to offer more and better services. We will need to maintain our momentum and continue to reinvest in our ongoing efforts to build the strongest foundation possible. This foundation is the prerequisite for further growth toward our Vision. In 2018, these primary goals are: Digital transformation and member experience, IT capability and cyber security, and Capital requirements. By any measure our 2017 results are impressive but, more importantly, they demonstrate that the benefits of our merger were not simply the result of one-time savings and efficiencies. We are building a better credit union for today and for the future. Thanks as always for being a member, KERRY HADAD PRESIDENT AND CHIEF EXECUTIVE OFFICER 7

8 2017 BY THE NUMBERS NUMBER OF ORGANIZATIONS SUPPORTED COMMUNITY FIRST NEW FACEBOOK FOLLOWERS YOUR NEIGHBOURHOOD TWEETS NUMBER OF HOURS DONATED 882 EVENTS NUMBER OF COMMUNITY EVENTS ATTENDED TOTAL FACEBOOK REACH IN 2017 EMPLOYEES PARTICIPATED * *Staff were counted each time they participated in an event YOUR NEIGHBOURHOOD NEW FACEBOOK FOLLOWERS 280 YOUR NEIGHBOURHOOD NEW TWITTER FOLLOWERS COMMUNITY FIRST NEW TWITTER FOLLOWERS COMMUNITY FIRST TWEETS YOUR NEIGHBOURHOOD NEW SUBSCRIBERS 221 COMMUNITY FIRST NEW SUBSCRIBERS

9 REPORT OF THE Audit and Risk Management Committee The Audit and Risk Committee of Your Neighbourhood Credit Union (YNCU) is a Committee of five directors, appointed by the Board of Directors pursuant to Section 125 of the Credit Unions and Caisse Populaires Act, 1994 (Ontario) and Section 27 of Ontario Regulation 237/09. The Committee has oversight responsibilities relating to financial reporting and disclosure, internal audit, external audit, risk management, controls and compliance. This year the Credit Union appointed a Manager Risk & Compliance and a Manager Internal Audit. Both of these appointments added valuable resources to the Committee. The Committee met seven times since the last AGM and completed the following key activities: Served as liaison between the Board of Directors and the external auditors; Reviewed and recommended to the Board of Directors, the terms of engagement for the external auditors and their remuneration; Reviewed and approved the external auditor s scope and audit plan; Reviewed the audited financial statements of the Credit Union and recommended their acceptance to the Board of Directors; Reviewed and approved the Internal Audit Charter and 2018 Internal Audit Plan Received and reviewed Internal Audit activities and reports; Received and reviewed quarterly reports under the Enterprise Risk Management Program; Reviewed reports of regulatory compliance audits, including the Credit Union s responses and progress on promised action plans; Reviewed reports on the Credit Union s insurance coverage; Discussed and reviewed with staff any changes in the Credit Union s Accounting Policies; Held scheduled in camera meetings with each of the external auditors, Internal Auditor and CFO; Performed an annual review of the Committee s Board approved mandate to confirm it remained appropriate to its role in the Credit Union, and Completed an annual evaluation of the Audit and Risk Committee s performance to ensure that all the Committee s responsibilities under its mandate were fulfilled. There are no significant recommendations made by the Committee that have not been implemented by the Credit Union. As well, the Committee is pleased to report that there are no outstanding matters which are required to be disclosed pursuant to the Act or Regulations. Respectfully submitted, PETER MUISE (CHAIR), HILARY ANDERSON, CHRISTINE COCCIMIGLIO, JOHN CROWLEY, AND DAVID WALKER 9

10 WE ASKED OUR STAFF, "WHAT WOULD YOU DO WITH $150 TO CELEBRATE CANADA 150?". Each idea was genuinely thoughtful and would have made a positive impact in our communities. Our staff were truly exemplifying our Mission, Vision, and Values in their suggestions and gave us some great ideas for celebrating Canada s 150th Birthday right here in the communities we serve. We were able to make positive and lasting impacts with the random acts of kindness we performed leading up to Canada 150 and it was truly something we could all take part in and be proud of. This was our way of honouring our own little pieces of Canada, and showing our communities that we mean it when we say we are a true community partner. 10

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12 CONDENSED FINANCIAL STATEMENTS STATEMENT OF FINANCIAL POSITION* DECEMBER 31, 2017 DECEMBER 31, 2016 (000 s) (000 s) Cash and Investments 144, ,506 Loans and Mortgages to Members 1,536,569 1,385,020 Other Assets 25,958 25,749 TOTAL ASSETS 1,707,226 1,534,275 Members Deposits 1,221,636 1,095,642 Other Liabilities 389, ,807 Membership Shares Member Equity Shares 35,313 36,631 Retained Earnings & Contributed Surplus 60,646 57,935 TOTAL LIABILITIES AND MEMBERS EQUITY 1,707,226 1,534, These financial statements represent excerpts from the full set of audited financial statements of Your Neighbourhood Credit Union Limited. Complete audited financial statements are available upon request. *As a result of the amalgamation with Community First Credit Union Limited, the Credit Union was required to adopt a December 31 period end. As a result of this change, the period ended December 31, 2016 reflects a 15-month period in the financial statements and, therefore, the financial information for the prior period being presented will not be entirely comparable.

13 STATEMENT OF COMPREHENSIVE INCOME * FOR THE 12 MONTHS ENDED DECEMBER 31ST, 2017 (000 s) FOR THE 15 MONTHS ENDED DECEMBER 31ST, 2016 Interest Earned 55,979 57,365 Other Income 7,921 7,481 TOTAL REVENUE 63,900 64,846 Interest Paid to Members on Deposits 17,766 17,205 Other Interest Expense 6,821 7,430 FINANCIAL EXPENSES 24,587 24,635 Provision for Loan Losses Personnel Costs 19,126 19,400 Occupancy Costs 4,107 4,520 General Business Costs 10,041 10,530 OPERATING EXPENSES 34,209 35,426 Operating Income 5,104 4,785 (Loss) Gain on CUCO Co-operative Association Shares (3) 52 (000 s) INCOME BEFORE INCOME TAXES AND MEMBERSHIP PATRONAGE DIVIDEND 5,101 4,837 Membership Patronage Dividend Income Taxes NET INCOME 3,818 3,972 ACTUARIAL (LOSS) GAIN IN DEFINED BENEFIT PENSION PLANS (412) 319 TOTAL COMPREHENSIVE INCOME 3,406 4,291 13

14 REPORT FROM Lending Services CATEGORY TOTAL PERSONAL LOANS & LINES OF CREDIT NUMBER OF LOAN APPLICATIONS RECEIVED 2,922 NUMBER OF LOAN APPLICATIONS GRANTED 2,189 NUMBER OF LOAN APPLICATIONS WITHDRAWN OR DECLINED 733 $$$ GROSS VALUE OF LOANS GRANTED $34,132,173 NUMBER OF DELINQUENT LOANS OVER 90 DAYS 76 $$$ VALUE OF DELINQUENT LOANS OVER 90 DAYS $435,819 The information outlined represents the CONSOLIDATED* number of loan applications received, granted and declined/withdrawn by applicants to Your Neighborhood Credit Union Limited, for the 12 MONTH PERIOD COMMENCING JAN 1, 2017 TO DEC 31, 2017 as well as numbers for Community First, a division of Your Neighbourhood Credit Union Limited. This report also includes the number and dollar extent of loans (all lending types) 90 days or more in arrears as at DEC 31, Value of delinquency reported is gross dollar delinquency, as per DICO by-law 6, prior to any adjustments for security held in support of those advances. 14

15 TOTAL RESIDENTIAL MORTGAGES & MERITLINES TOTAL AGRICULTURAL TOTAL CORPORATE COMMERCIAL LENDING YNCU TOTAL 2, ,583 1, , ,679 $282,243,240 $6,647,721 $127,463,376 $450,486, $2,077,841 $0 $771,433 $3,285,093 The lending application process adheres to the Credit Management and Operational Policies of Your Neighbourhood Credit Union Limited and is subject to the review of the Governance Committee on behalf of the Board of Directors. The report is issued in compliance with the requirements of the Credit Unions and Caisses Populaires Act, 1994 (Ontario). Content respectfully submitted by: Glenn Wilson, Chief Lending Officer; Steve Gagesch, Senior Commercial Account Manager; Robert Leggo, Manager of Collections * Source reports - compilation of YNCU Lending Services Monthly Board reporting. 15

16 COMMUNITY INVESTMENT REPORT A primary commitment of Your Neighbourhood Credit Union and Community First is to share the wealth by making investments back into our communities through grants, donations, sponsorships and volunteering. Every year we set aside a minimum of 1% of the pre-tax profit earned by the credit union in the previous fiscal year, to be used primarily for charitable organizations. In addition, Your Neighbourhood and Community First designate funds that will be used to support organizations, events and causes that contribute to making life better in the places where members live, work, learn and play. We also donate items for fundraisers and auctions, and staff give of their own time to participate in events and support the efforts of community organizations they care about. The Community Investment Program is managed corporately to ensure equitable distribution within the communities in which we operate, and which have a focus on education, the arts, health and wellness, and recreation. Preference is given to those organizations likely to provide lasting benefits, and whose values best reflect similar values held by the broader YNCU membership. During the reporting period, we supported the following: 16 ALS WALK, SAULT STE. MARIE ALZHEIMER SOCIETY WALK FOR ALZHEIMER S PRESENTING SPONSOR FOR THE FOLLOWING CHAPTERS WATERLOO-WELLINGTON (KITCHENER, WATERLOO, CAMBRIDGE, GUELPH, MOUNT FOREST); LONDON & MIDDLESEX; PERTH (STRATFORD AND LISTOWEL); BRANT (BRANTFORD AND PARIS); WINDSOR ARCH BUTTERFLY RELEASE BELL CITY ROOSTERS FOOTBALL CLUB BRANT FOOD FOR THOUGHT BRAZ FOR A CAUSE (BREAST CANCER) BRING A DOCTOR HOME (NORTHERN ONTARIO SCHOOL OF MEDICINE) BUSINESS & EDUCATION PARTNERSHIP WATERLOO REGION CAMBRIDGE ROTARY RIBFEST CANADIAN CANCER SOCIETY WATERLOO- WELLINGTON RELAY FOR HOPE CANADIAN RED CROSS ALBERTA WILD FIRES CHYM TREE OF HOPE IN SUPPORT OF FAMILY & CHILDREN S SERVICES OF WATERLOO REGION FOUNDATION CITY OF BRANTFORD CANADA DAY CELEBRATIONS CITY OF WATERLOO WINTERLOO CLAIR HILLS COMMUNITY ASSOCIATION COLDEST NIGHT OF THE YEAR, SAULT STE. MARIE COMMUNITY FIRST CURLING CENTRE COMMUNITY SUPPORT CONNECTIONS - MEALS ON WHEELS AND MORE WATERLOO REGION COMMUNTIY FIRST SOO PEE WEE ARENA CRIME STOPPERS, SAULT STE. MARIE AND WATERLOO REGION DIABETES CANADA HEALTH AND WELLNESS EXPO FIRE SAFETY EDUCATION VAN AND FIRE SAFETY HOUSE, COLDWELL BANKER PETER BENNINGER REALTY GRAND RIVER COUNCIL ON AGING HOLY SPIRIT CATHOLIC ELEMENTARY SCHOOL NATURAL PLAYGROUND CONSTRUCTION INTERNATIONAL DAY OF PINK AGAINST BULLYING KIDS CAN PLAY LASALLE POLICE YOUTH FOUNDATION MITCHELL & DISTRICT AGRICULTURAL SOCIETY OPTIMISM PLACE WOMEN S SHELTER AND SUPPORT SERVICE OPTIMIST CLUB OF MITCHELL OXFORD COUNTY FEDERATION OF AGRICULTURE PERTH COUNTY HOLSTEIN CLUB ROSE CITY SPORTS & SOCIAL CLUB ROTARY CLUB OF BRANTFORD-SUNRISE ROUGHNECK MUD RUN ROTARY CLUB OF WATERLOO ROTARYFEST MIRACLE MILE COLOUR BLAST, SAULT STE. MARIE ROYAL CANADIAN LEGION REMEMBRANCE DAY SAULT MINOR FOOTBALL ASSOCIATION SAULT YMCA GYMNASTICS CLUB SEBRINGVILLE LIONS CLUB SOO PEE WEE HOCKEY LEAGUE TERRY FOX RUN THANK-A-VET LUNCHEON THE LUNG ASSOCIATION S FESTIVAL OF TREES UNITED WAY OF KW AND AREA, WINDSOR- ESSEX AND SAULT STE. MARIE WATERLOO REGIONAL CRIME STOPPERS WOMEN IN CRISIS ADOPT A FAMILY WOMEN S CRISIS SERVICES OF WATERLOO REGION YELLOW DAY FOR THE CANADIAN CANCER SOCIETY YMCA OF STRATFORD-PERTH, AND WESTERN ONTARIO

17 STAFF CONTRIBUTIONS In addition to corporate support, staff voluntarily pay $2 each Friday for Dress Down Days. The amounts collected are then distributed to charities selected annually by staff. In 2017, $19, was given to the following organizations: IN SAULT STE. MARIE AND TIMMINS: ARTHRITIS SOCIETY BIG BROTHERS BIG SISTERS OF SAULT STE. MARIE COLDEST NIGHT OF THE YEAR HUMANE SOCIETY KIDSSPORT TIMMINS PAULINE S PLACE UNITED WAY OF SAULT STE. MARIE WOMEN IN CRISIS IN SOUTHWESTERN ONTARIO: BIG BROTHERS BIG SISTERS WINDSOR, WOODSTOCK, BRANTFORD, KW, GUELPH BRANTFORD FOOD FOR THOUGHT CAMBRIDGE SELF-HELP FOOD BANK FELINE FRIENDS NETWORK FOOD BANK OF WATERLOO REGION GUELPH FOOD BANK HUMANE SOCIETY OF KITCHENER-WATERLOO INNISFREE HOUSE HOSPICE KIDS CAN PLAY LISAARD HOUSE HOSPICE LONDON FOOD BANK MEALS ON WHEELS SAKURA HOUSE HOSPICE (VON OXFORD) STRATFORD HOUSE OF BLESSING STRATFORD PERTH HUMANE SOCIETY THE DOWNTOWN MISSION OF WINDSOR WOMEN S COMMUNITY HOUSE RONALD MCDONALD HOUSE 17

18 18 YOUR NEIGHBOURHOOD CREDIT UNION

19 COMMUNITY FIRST A DIVISION OF YOUR NEIGHBOURHOOD CREDIT UNION 19

20 Sault Ste. Marie Timmins Mitchell Stratford Kitchener Shakespeare Paris Woodstock Brantford London Waterloo Guelph Cambridge YOUR NEIGHBOURHOOD CREDIT UNION Brantford - Charlotte Street 7 Charlotte Street Brantford (519) Brantford - Fairview Drive 403 Fairview Drive Brantford (519) Cambridge 385 Hespeler Road Cambridge (519) Guelph 190 Clair Road East Guelph (519) Kitchener - Fairview Park Mall 2960 Kingsway Drive Kitchener (519) Kitchener - Fischer-Hallman 685 Fischer-Hallman Road Kitchener (519) Kitchener - Weber Street East 1334 Weber Street East Kitchener (519) LaSalle 5844 Malden Road LaSalle (519) London - Dundas Street 343 Dundas Street, Suite 100 London (519) Mitchell 105 Ontario Road Mitchell (519) Branch Locations Paris 75 Grand River Street North Paris (519) Shakespeare 6 Huron Road East Shakespeare (519) Stratford 1067 Ontario Street Festival Marketpace Shopping Centre Stratford (519) Waterloo - Erb Street West 655 Erb Street West Waterloo (519) Waterloo - Uptown 168 King Street South Waterloo (519) Windsor - Tecumseh Mall 7654 Tecumseh Rd E Windsor (519) Woodstock 400 Dundas Street Woodstock (519) COMMUNITY FIRST Bay Street 289 Bay Street Sault Ste. Marie (705) Trunk Road 535 Trunk Road Sault Ste. Marie (705) Timmins 146 Cedar Street South Timmins (705) Windsor LaSalle